Rolling Stones lose audit dispute

The Rolling Stones have lost their High Court bid to force immediate disclosure of financial records by their old record company, Decca Music Group Limited. On 12 November 2004, the court ruled in favour of Decca by staying court proceedings to allow arbitration to take place, which may or may not result in the arbitrator ordering disclosure of the documents sought by the group.

In 1976, Decca and the group entered into a contract which provided (amongst other things) for Decca to account for royalties in respect of its exploitation of the group’s recordings, a right for the group to appoint an auditor to audit each account delivered and for Decca to make available all books and records pertaining to those accounts. Subsequently, the three remaining members of the group sought to inspect some specified documents to confirm that royalties due to them had been correctly accounted but Decca refused to make them available saying that they were not contractually obliged to provide the particular documents sought by the group.

The agreement also contained an arbitration clause requiring that any disputes in connection with the agreement be referred to arbitration (rather than the courts) provided that the sole obligation of the losing party is to pay the sum (if any) awarded by the arbitrator. Because it is uncertain at this stage whether the group’s audit would in fact reveal an under-accounting entitling the group to be awarded a sum of money (hence the group’s request for the documents), the group contended that the arbitration clause should not apply to this purely procedural matter, which should instead be decided by the court.

The court agreed with Decca that the arbitration clause was very wide and that the remedy restriction was irrelevant since it is always open to a claimant to seek damages for breach or an “account of royalties due”. The judge said that the arbitrator would, in any case, be bound to require the production of all documents that the group are contractually entitled to see and which the auditor would reasonably have requested in the performance of his auditing duties. The court labelled the distinction drawn by the group between procedural and substantive rights as “illusory”.

The English court has once again supported the notion that when arbitration is contemplated in an agreement, it should be availed of whenever possible. An arbitration clause should be very carefully worded unless the parties are prepared to honour it in almost any circumstances.

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